Notes forming part of the financial statements 1. General Information Multi Commodity Exchange of India Limited (the 'Company' or the 'Exchange') is an electronic commodity futures Exchange. The Company is a demutualised Exchange and has permanent recognition from the Government of India to facilitate nationwide online trading, clearing and settlement operations of Commodity futures transactions. 2. Significant accounting policies A. Basis of accounting and brparation of financial statements The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 which are deemed to be applicable as per Section 133 of the Companies Act, 2013 ("the 2013 Act") read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the 2013 Act, as applicable. The financial statements have been brpared on accrual basis under the historical cost convention. B. Use of estimates The brparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Differences between actual results and estimates are recognised in the period in which the results are known / materialise. C. Cash and cash equivalents (for purposes of Cash Flow Statement) Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition). D. Cash Flow Statement Cash flows are reported using the indirect method, whereby profit / (loss) before exceptional items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information. E. Fixed assets Fixed assets (tangible assets) are stated at cost of acquisition or construction and carried at cost less accumulated debrciation and impairment loss, if any. Intangible assets are recognised only if it is probable that the future economic benefits that are attributable to the assets will flow to the enterprise and the cost of the assets can be measured reliably. Expenditure on an intangible item is expensed when incurred unless it forms part of the cost of intangible asset that meets the recognition criteria. Intangible assets are stated at cost of acquisition and are carried at cost less accumulated amortisation and impairment loss, if any. F. Debrciation and amortization Fixed assets (tangible) are debrciated / amortized over their useful lives as specified in "Part C" of Schedule II of the Companies Act, 2013. Fixed assets costing less than Rs. 5,000 are debrciated fully in the year of purchase / acquisition. Debrciation is charged on pro-rata basis in the month of purchase / sale. Fixed assets (intangible) are amortized on their estimated useful life on straight line basis. G. Impairment of fixed assets The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the assets. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of Profit and Loss. If at the Balance Sheet date there is an indication that if a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at lower of the carrying amount that would have been determined had no impairment loss been recognised or recoverable amount. H. Operating leases Assets taken/given on lease under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating lease. Lease payment/income under operating leases is recognised as expenses/income on a straight line basis over the lease term in accordance with the respective lease agreements. I. Investments Current investments are carried at the lower of cost and fair value. Long-term investments are stated at cost less provision for diminution. Provision for diminution in the value of long-term investments is made only if such a diminution is other than temporary in the opinion of the management. The difference between carrying amount of the investment determined on average cost basis and sale proceeds, net of expenses, is recognised as profit or loss on sale of investments. J. Revenue Recognition Revenue is recognised on accrual basis and when no significant uncertainty as to measurement and realisation exists. a) Volume based transaction fees are accrued when orders placed by members on the network are matched and confirmed. b) Admission Fees (non refundable) collected from new members for joining the Exchange are recognized once membership is approved. c) Annual subscription fees from members are recognized on accrual basis. d) Revenue from terminal charges is accrued on activation of new chargeable user. e) Connectivity income is accrued over the expected period of providing connectivity service. f) Dividend income is recognised when the Company's right to receive dividend is established. g) Interest income is recognised on time proportion basis. K. Foreign currency transactions and translation Foreign exchange transactions are recorded at the exchange rates brvailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the exchange rate brvailing at the Balance Sheet date; the resultant exchange differences are recognised in the Statement of Profit and Loss. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the Statement of Profit and Loss of the year. Non-monetary items are carried at historical cost using the exchange rates on the date of the transaction. L. Operating cycle Based on the nature of activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current. M. Employee Benefits a) Post employment benefits and other long term benefits Payments to defined contribution schemes and other similar funds are expensed as incurred. For defined benefit schemes and other long term benefit plans viz. gratuity and compensated absences expected to occur after twelve months, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the Balance Sheet date. Actuarial gains and losses are recognised in full in the Statement of Profit and Loss for the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet rebrsents the brsent value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the brsent value of the available refunds and reduction in contributions to the scheme. b) Short term employee benefits The undiscounted amount of short term employee benefits expected to be paid in exchange for the services rendered by employees is recognised as an expense during the period when the employee renders those services. These benefits include compensated absences such as leave expected to be availed within a year and performance incentives. N. Stock based compensation The compensation cost of stock options granted to employees is measured by the intrinsic value method, i.e. difference between the market price of the Company's shares on the date of grant of options and the exercise price to be paid by the option holders. O. Income taxes Income taxes are accounted for in accordance with Accounting Standard (AS-22) "Accounting for Taxes on Income". Tax expense comprises current tax and deferred tax. Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of Income-Tax Act, 1961. The Company recognises deferred tax based on the tax effect of timing differences, being differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the Statement of Profit and Loss using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised for timing differences of items other than unabsorbed debrciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, deferred tax assets are not recognised on unabsorbed debrciation and carry forward of losses unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. P. Provisions, contingent liabilities and contingent assets A provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes to Accounts to the financial statements. Contingent assets are not recognised in the financial statements. Q. Earnings per share Basic earnings per share are computed by dividing the profit after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit after tax as adjusted for dividend, interest and other charges to expense or income (net of any attributable taxes) relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period brsented. 2. SEGMENT REPORTING Based on the risks and returns identified, organizational structure and the internal financial reporting system, the business segment is the primary segment for the Company and accordingly "business of facilitating trading in commodities and incidental activities thereto" is considered as the only Primary Reportable business segment. Further, since the Company renders services mainly in the domestic market in India there is no geographical segment. 3. There are no amounts due to the suppliers covered under the Micro, Small and Medium Enterprises Development Act, 2006; this information takes into account the available data with the Company. 4. Pursuant to Companies Act, 2013 ('the Act') being effective from 1 April, 2014, the Company has revised debrciation rates on certain fixed assets as per the useful life specified in 'Part C' of Schedule II of the Act. In respect of assets whose useful life is already exhausted as on 1 April, 2014, debrciation of Rs. 87.55 million (net of tax impact of Rs. 29.76 million) has been adjusted in the Retained Earnings, in accordance with the requirements of Schedule II of the Act. Consequent to the applicability of the Companies Act, 2013 with effect from 1 April, 2014 debrciation for the year ended 31 March, 2015 charged to the Statement of Profit and loss is higher by Rs. 28.55 million for the assets, whose useful life continues beyond 1 April, 2014 5. In accordance with the directions of the Forward Markets Commission (FMC), a Special Audit of the Company was carried out for the period since inception of the Company to 30 September, 2013. The terms of reference, inter alia, included identification of related parties (as defined by FMC in the terms of reference and a working definition arrived at for the purpose of the review), review of non-trading transactions between the Company and significant related parties, and review of transactions of expenses incurred (individually) above Rs. 25 Lakhs. As per the Report, the working definition of related parties is not as may be defined under any provisions of any brvailing laws or guidance from any professional bodies in India. The Final Report of the Special Audit was received on 21 April, 2014 and was placed before the Board of the Company on 26 April, 2014. The Management of the Company after making a detailed analysis of the observations in the Report, and after ascertaining the facts in each case has taken appropriate action including legal and filing of recovery suits as it deemed fit. As a part of this action, Rs. 112.07 million (Rs. 35.10 million included under Other income - note 19 under the head "Miscellaneous Income" and Rs. 76.97million included under Other expenses - note 22 under the head "provision for doubtful advances" was recovered during the year ended 31 March, 2015. 6. (i) Forward Markets Commission (FMC) had issued revised norms regarding Shareholding, Ownership, Net worth, Fit & Proper criteria, etc. on 6 May, 2014. Pursuant to this order, in addition to other entities, Kotak Mahindra Bank Ltd acquired 15% equity stake in the Company from Financial Technologies (India) Limited (FTIL, erstwhile Promoter of the Company) during the year. Accordingly, FTIL is no longer a related party w.e.f 29 August, 2014. (ii) The Board of Directors had constituted a Negotiation Committee to discuss the contracts with entities related to the erstwhile promoter group, in particular, Financial Technologies (India) Limited (FTIL). Consequent to the negotiations, effective 1 July, 2014 the Company entered into Master Amendment to Principal Agreements with FTIL. (iii) Consequent to the Master Amendment to the Principal Agreements with FTIL and divestment by FTIL of its entire stake in the Company, the Company has complied with the FMC Order dated 17 December, 2013 and the revised norms regarding shareholding, ownership, net worth, Fit & Proper Criteria, etc. of the Nationwide Multi Commodity Exchanges (NMCE) dated 6 May, 2014. Accordingly, FMC vide its letter, dated 29 September, 2014 granted its approval for Continuous Contract Launch Calendar for the futures contracts expiring in the year 2015 and onwards. 7. (i) During the year, the Company converted 2,10,46,514 warrants of Metropolitan Stock Exchange of India Limited (MSXI) [(formerly known as 'MCX Stock Exchange Limited (MCX-SX)] into equity shares. During the year the Company also sold 3,05,39,982 number of warrants. Accordingly, as at 31 March, 2015 the Company has investments in 482,11,514 (as at 31 March, 2014: 27,165,000) equity shares and 58,25, 83,504 (as at 31 March, 2014: 634,170,000) warrants of MSXI and investments in 6,500,000 equity shares of MCX-SX Clearing Corporation Limited (MCX-SX CCL). The warrants are valid till 19 June, 2015 and each warrant entitles the Company to subscribe to one equity shares of MSXI at any time after six months from the date of issue of warrants. The warrants are freely transferable by endorsements and delivery. The warrants do not carry any dividend or voting rights. (ii) Pursuant to SEBI Order dated 19 March, 2014, the Company has been directed by SEBI to divest its holding in both MSXI and MCX-SX CCL. The Company through various correspondence and vide its recent letters dated 30 April, 2015 and 4 May, 2015 has once again rebrsented to SEBI that FTIL and the Company no longer act in concert, especially in view of the developments during the year, the Company may be permitted to hold up to 15% of the paid up capital of MSXI and be granted extension of time till 31 December, 2015 to hold its warrants. (iii) In accordance with Accounting Standard 13 on "Accounting for Investments" and the Company's accounting policy, current investments are to be carried at the lower of cost and fair value in the Balance Sheet. Based on the latest available financial statements of these companies, the Management of the Company is of the view that the aggregate carrying amount of investments of Rs. 1,313.90 million which is equivalent to the cost of their acquisition rebrsents the fair value of these investments as at 31 March, 2015. 8. (i) The Board of Directors of SME Exchange of India Limited (SME) in its meeting held on January 19, 2015 considered hat SME had not commenced any operations and with no possibility of commencing in the foreseeable future, agreed to the members' voluntary winding up and decided that the cut-off date for the financial statements shall be January 21, 2015. Further, the members of SME at its Second Extra Ordinary General Meeting, held on March 30, 2015, accorded their consent for its winding up pursuant to the provisions of Section 484(1) (b), of the Companies Act, 1956. The Directors of SME after having made inquiry into the affairs of the Company and on the basis of the Auditors report for the period commencing from April 1, 2014 to January 21, 2015, and Declaration of Solvency, formed the opinion that the Company is solvent and will able to pay its debt in full within 36 months from the commencement of winding up. (ii) In accordance with Accounting Standard 13 on "Accounting for Investments" and the Company's accounting policy long-term investments are stated at cost less provision for diminution. Provision for diminution in the value of long-term investments is made only if such a decline is other than temporary in the opinion of the management investments are to be carried at the lower of cost and fair value in the balance sheet. Accordingly, provision for diminution of Rs. 0.11 million has been made for the Company's investment in SME. 9. During the year, the Company has spent Rs. 5.33 million as Corporate Social Responsibility (CSR) expenditure. 10. The brvious year figures have been reclassified / regrouped to conform to this year's classification. For and on behalf of the Board of Directors G. Anantharaman Director Satyananda Mishra Chairman Ajay Puri Company Secretary & Chief Compliance Officer Sandeep Kumar Sarawgi Chief Financial Officer Parveen Kumar Singhal Joint Managing Director Mumbai 14 May 2015 |